Finance and synchronization

Ambrogio Cesa-Bianchi, Jean Imbs, Jumana Saleheen

Research output: Contribution to journalArticlepeer-review


In the workhorse model of international real business cycles, financial integration exacerbates the cycle asymmetry created by country-specific supply shocks. The prediction is identical in response to purely common shocks in the same model augmented with simple country heterogeneity (e.g., where depreciation rates or factor shares are different across countries). This happens because common shocks have heterogeneous consequences on the marginal products of capital across countries, which triggers international investment. In the data, filtering out common shocks requires therefore allowing for country-specific loadings. We show that finance and synchronization correlate negatively in response to such common shocks, consistent with previous findings. But finance and synchronization correlate non-negatively, almost always positively, in response to purely country-specific shocks.

Original languageEnglish (US)
Pages (from-to)74-87
Number of pages14
JournalJournal of International Economics
StatePublished - Jan 2019


  • Business cycles synchronization
  • Common Shocks
  • Contagion
  • Financial linkages
  • Idiosyncratic Shocks

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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